Gold in Chinese Yen!

By tolky1 on Thu, Apr 2, 2015 - 6:14pm

Dave Fairtex maybe a few months ago shared some recent work on precious metals performing differently in different currencies.  I hear a lot about Southeast Asian demand for gold and how gold is moving from west to east.  I don't doubt that to be true.

But when you look at maybe the country where gold performs the best currently, gold in Brazil lira is only 137 lira off (3.5%) of its 2012 all-time high of 3883 lira.  And I never really hear of Brazilians buying gold.  Yet gold priced in Rupee is 24% off its 2012 high, and priced in yuan it's almost 39% off its 2012 high, so why doesn't the obvious demand in Southeast Asia result in relatively higher prices than in Brazil?  Put another way, all that Chinese demand has meant a gold price in Yuan which has fallen more than gold in US dollar terms (almost 37%), and we all know that we pale in comparison to China in our demand for gold.  Can anybody throw me a rope here?



davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5740
currency effects


Gold is an internationally traded (and priced) commodity.  Gold isn't rising in Brazil because of high levels of local demand, its rising in Brazil because the BRL is plummeting with respect to the dollar.  Every other commodity that Brazil imports that has an international price is also rising.  That's the bad thing about a plummeting currency - it imports commodity inflation for commodities that have an international price.

CNY is a very strong currency.  Regardless of the strong gold demand in China (and I agree, its strong there), if the CNY is more or less tracking the USD, gold priced in CNY will not rally any faster than gold in the US, as long as China has access to the international markets and can buy gold at the international price.

Put simply, your local price of gold is often a currency effect.  Because the Euro is dropping, gold-in-euros looks quite bullish.  Its not about demand for gold in Europe - its just about the movement of the currency.


tolky1's picture
Status: Member (Offline)
Joined: Jun 11 2014
Posts: 5
Thanks for your hard work

Thanks so much, Dave for all you do.  I'm guessing there is some sort of managed money move there i.e. they see a weakening currency in the future and believe they can likely profit by buying gold, or not buying gold, in respective currencies.  Thanks very much.

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